Councils must better understand procurement spend with small firms

Reference number: PR/2012/25

FSB News Release
PR 2012 25

Issue date: Monday 23 July 2012

Councils need to better understand procurement spend with small firms to benefit local economy

Local councils spend £88 billion per year on procurement. Yet with many not knowing where or what size of business they are trading with, local communities are losing out according to new research from the Federation of Small Businesses (FSB).

Treasury estimates total procurement spend of UK local authorities at £88 billion per year, so the FSB polled all local councils to see how and where they spend their money.

The survey revealed some interesting and often positive findings, with many councils indicating that over half their procurement spend went to small and medium-sized businesses. However, of the 148 local authorities that responded, the FSB found more than a third (38%) of councils do not actively record the location of their spending and almost a half (49%) don''t know the size of business they trade with.

With the average annual spend per council which responded to the poll at £185 million, they have huge spending power. The FSB believes that councils must be more aware of what they spend and how they spend it to maximise the benefits to the communities they work for. As research shows that money spent with local businesses stays in the local economy, this will have positive knock-on effects for those areas.

Effective and responsible procurement can benefit both small firms and the local economy by creating new jobs, keeping existing ones as well as creating new businesses. The FSB''s research showed the vast majority of councils claimed to have initiatives in place to support small businesses with the procurement process. But if councils want these to be effective, they need to at least know what they are doing to meet their goals.

The FSB wants to see more accurate and public recording of spend so that it can properly inform strategy and decision making. This will help to embed and understand the link between procurement and local economic development.

The FSB is calling for all local councils to:

• Put mechanisms in place to record and analyse where and with which businesses money is spent. This should also measure the size of business by micro, small and medium. The data should be transparent and publicly available

• Ensure they have initiatives to support small firms with the tender process and to develop the potential of their local small business supply base

• Streamline and standardise the pre-qualification processes, including specific approaches for the lowest value contracts
• Provide detailed, specific and timely feedback to all unsuccessful businesses so they are in a better place to bid in the future

• Break contracts into smaller lots where possible

• Use the relevant national portal to advertise procurement opportunities

John Walker, National Chairman, Federation of Small Businesses, said:

"We are pleased that so many councils took part in the research. It has allowed us to build up a good picture of what is going on and identify some really good practice.

"However, we were surprised that so many councils aren''t being more proactive in terms of the how they record their spending. Knowing where spend is going in the local area, as well as what type of businesses are getting contracts, would help councils focus on improving their procurement processes and ultimately boost local communities by helping councils ensure their local small businesses are getting a fair chance to compete for contracts.

"There are a number of steps we would like to see local procurers take to maximise opportunities for small suppliers. No council is likely to be doing everything we recommend, but we would very much like to see as many as possible work with their local small businesses."

ENDS

Notes to Editors

1. The FSB is the UK''s leading business organisation with around 200,000 members. It exists to protect and promote the interests of the UK''s Real-Life Entrepreneurs who run their own business. More information is available at
www.fsb.org.uk

2. The survey also revealed that on average, local authorities spend 49 per cent of their total procurement spend with SMEs. The spend with SMEs ranged considerably from less than 10 per cent to in excess of 70 per cent. 66 per cent of local authorities felt that SMEs face barriers in accessing procurement opportunities.

3. According to the ‘Public expenditure statistical analyses (2011)'' HM Treasury, p. 98, local authorities spend £68 billion on revenue activities together with a further £20 billion procuring capital projects.

4. The FSB defines a micro business as one with less than 10 employees; small business between 10 and 49 employees; medium-sized business 50-249 employees and large 250+.

5. Each of the four countries in the UK has its own portal for advertising procurement contracts: Contracts Finder in England, Public Contracts Scotland, Sell2Wales, eSourcing NI.

6. Research by the CLES for Manchester City Council demonstrated that suppliers based in the Manchester and Greater Manchester area respent significantly more of every £1 invested by the council through procurement than those based nationally (23p in the £1 for Manchester based firms compared to 12p in every £1 for national firms, double the re-spend). (The Power of Procurement, Towards Progressive Procurement: The Policy and Practice of Manchester City Council (2010), Centre for Local Economic Strategies).

7. The survey also revealed that on average, local authorities spend 49 per cent of their total procurement spend with SMEs. The spend with SMEs ranged considerably from less than 10 per cent to in excess of 70 per cent. 66 per cent of local authorities felt that SMEs face barriers in accessing procurement opportunities.

8. The research was undertaken by Centre for Local and Economic Strategies on behalf of the FSB. Surveys were sent via email to all 432 local authorities in the UK between 16 April and 14 May 2012. 148 councils responded. The report is available from
www.fsb.org.uk